The Social Security Administration (SSA) has announced that the maximum earnings subject to the social security payroll tax will increase by $7,500 in 2025. Here’s what you should know about the increase.

What is the wage base?

Every year, the taxable wage base is calculated based on increases in the national average wage index, which is calculated annually by the SSA. Assuming there was a cost-of-living increase as well as an increase in average wages over the year before, the Social Security base will be increased.

What is the new maximum earnings cap for payroll taxes?

So, for 2025 employers must withhold the following amounts:

• 6.2% Social Security tax on the first $176,100 of employee wages (maximum tax is $10,918.20; i.e., 6.20% × $176,100)
  • up from $10,453.20 in 2024

• 1.45% Medicare tax on all employee wages (no change from 2024)

• 2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all employee wages in excess of $200,000.

Have the FICA rates changed?

Medicare and social security taxes are collected together, under the umbrella of the FICA (Federal Insurance Contributions Act) tax. There have been no changes to the actual rates for 2025.

The current rates as of January 1, 2025 are as follows (up to the social security base):

Highly compensated employees pay an additional 0.9 percent in Medicare taxes (based on their filing status) on earnings that exceed the following threshold amounts (unchanged from 2024):

• $250,000 for married taxpayers who file jointly.

• $125,000 for married taxpayers who file separately.

• $200,000 for single and all other taxpayers.

These amounts are not adjusted for inflation.

Make note that if your employees earn more than $200,000 in a calendar year, you must withhold the additional Medicare tax from their wages.

Any social security changes for retirees?

Also starting January 1, 2025, monthly Social Security and Supplemental Security Income benefits for retirees will jump by 2.5% (3.2% in 2024). This increase is based on the increase to the Consumer Price Index from the third quarter of 2022 through the third quarter of 2023. Accordingly, starting in January, the average monthly retirement benefit will increase by more than $50.

What about those who continue working while collecting Social Security benefits?

Social security can be collected starting at Age 62. Beneficiaries under the full retirement age who are still working receive a reduced monthly benefit if they earn more than the annually adjusted threshold. Full retirement age for beneficiaries born in 1957 is 66 years and 6 months and for beneficiaries born in 1958 is 66 years and 8 months.

For 2025, $1 in benefits will be withheld for every $2 in earnings above $23,400 (increase from $22,320 in 2024). Those who will reach retirement age during 2025 will have $1 in benefits withheld for every $3 in earnings exceeding $62,160 (up from $59,520) until the month they reach full retirement age. Beyond that month, there is no limit.

Employers - what to do to prepare for the increase:

If you have employees whose earnings exceed the current 2024 cap of $168,600, you will want to notify them that they may have a slightly lower net take home pay during 2025 due to the increase.

Before January 1, be sure to:

• Modify your payroll systems to account for the higher taxable wage base of $176,100

• Alert impacted employees that more of their pay will be subject to payroll withholding